Bank Lawyer's Blog

A Bad Idea That Refuses To Die

Even though municipalities like San Bernardino have come to their senses and dropped a make-your-investment-banker-rich-quick scheme to seize underwater mortgages from mortgage lenders and wrote down the principal balances, the scheme refuses to completely die. I guess we'll have to use holy water, garlic, mirrors, fire, crucifixes and wooden stakes to stamp it out. In the interim, SIFMA continues to publicly pummel it.

In a recent post on its Pennsylvania + Wall blog, SIFMA's Timothy Cameron reiterates why those municipalities still considering this likely unconstitutional scheme to abandon it.

The proposals being touted target a very narrow slice of homeowners – those that are in private-label MBS and who are current on their existing mortgages, have good credit, and ideally don’t have existing home equity loans or other liens on the property. Those who are behind on their mortgage payments or have poor credit (which is the vast majority of homeowners needing help) will get no relief.

Within the small pool of qualifying homeowners, the proposal, on its face, will substantially undervalue their homes. In one example, the mortgage that investors would get paid $160,000 for is refinanced shortly thereafter for $190,000, with much of the additional $30,000 going to the plan’s backers after costs and a kickback to the municipality are accounted for. This is not fair compensation, since the amount paid is well below the face value of the taken note, and significant profits accrue to private parties.

In addition to the legal issues, the use of eminent domain will also be immensely destructive to U.S. mortgage markets in general and to specific communities using eminent domain, in particular. If the sanctity of the contractual relationship between a borrower and a creditor is undermined by the use of eminent domain, both lenders and investors will be reluctant to provide funding in the future. The result will be a significant contraction of credit availability, particularly in communities that have exercised eminent domain to seize loans. It will be much harder to get a loan: any loans that are granted will likely require much larger down payments, stronger credit scores and higher interest rates to compensate for this new and unprecedented risk. This contraction of credit availability would likely serve to halt any recovery in the municipality’s housing market, and could further depress housing values in the cities using eminent domain.

The last reason may be the most telling. Good luck with the future availability of affordable residential mortgage credit in your soon-to-be dustbowl of a community if you enact this scheme. The investment fund gets wealthy, of course, which is the impetus for this half-baked plan. All to help, but not so much, a narrow slice of the community.

Bad ideas never die. They never seem to fade away, either, unfortunately.

Impeding Foreclosure Hurts Homeowners As Well As Lenders

According to a story at Housingwire, a recent study by research firm Corelogic concludes that those states with more cumbersome and lengthy foreclosure processes impose "hidden costs" on homebuyers.

"Extended disposition timelines impose operational costs on servicers, carrying costs on investors in the mortgages, and in some cases, significant legal risk and compliance costs," said Mark Fleming, chief economist for CoreLogic.

"The likely result is more expensive mortgages and possibly increased rationing of credit based on the additional costs of disposition, which may vary dramatically by local foreclosure process requirements," he added.

In the short run, however, all the homes tied up in foreclosure restricts supply and, for the immediate future, stablizes or actually increases home prices. In some states and regions (California, the South and the Southwest), a steep drop in REO, due to investor demand, has also helped housing prices.

Unfortunately, over the long run, in addition to the possible increase in borrowing costs in long-foreclosure states, the results are not favorable. An earlier Housingwire piece that addressed a study by LPS, claimed that judicial foreclosure states were lagging in recovery versus non-judicial foreclosure states. These studies support Housingwire's publisher Paul Jackson's long-asserted contention that housing markets would have recovered more quickly than they have if foreclosure was allowed to run its course and inventory was cleared more quickly. In other words, the desire to "do good" over the short term may be prolonging the pain and adding new pain to the residential housing market.

The Not-So-Secret Facts of Life

The LA Times obtained a bunch of documents from the FDIC pursuant to a FOIA request and uncovered some startling news: the FDIC is settling lawsuits against those it alleges caused banks to fail. Worse than that, the FDIC is agreeing not to issue press releases regarding many of the settlements. This earth-shattering news is labeled a "major policy shift" from the way the FDIC handled failed bank litigation that arose out of the last big bank meltdown, "when the FDIC trumpeted punitive actions against banks as a deterrent to others."

Before I address that last point, let's listen to some more suspicious minds support the Times theme that all of this "secret settlement" skulduggery smacks of some kind of plot to let evil-doers escape the lynch mobs that surely would have strung them up if only the FDIC had set public outrage en fuego by  trumpeting these settlements from the top of the Rocky Mountains.

Critics fault the government for going easy on banks in the aftermath of the financial crisis. At a Feb. 14 hearing, Sen. Elizabeth Warren (D-Mass.), founder of the Consumer Financial Protection Bureau, criticized FDIC Chairman Martin J. Gruenberg along with other bank regulators for their reluctance to make examples of Wall Street firms by taking them to trial.

Quoting "The Founder" is a go-to proposition for the Times, and one that lacks the punch that soundbites from other less usual suspects bring to the table. In addition, the Times' accusations range far beyond Wall Street banks. It's mostly (if not entirely) the little guys that are being pursued. God forbid they should get a break today from anyone other than MacDonalds.

Attorneys who have represented bank officials and the FDIC said regulators are now far likelier to settle cases before filing lawsuits than after the last spate of failures, when more than 2,300 institutions collapsed in the 1980s and early 1990s, bankrupting a fund that insured savings and loan deposits. That crisis grew out of Reagan-era deregulation, which allowed thrifts already hurting from 1970s inflation to make riskier investments, including commercial real estate deals that soured en masse during the second half of the 1980s.

Critics describe the FDIC's current practice of low-profile deal-making as a major departure from the S&L crisis.

"In the old days, the regulators made it a point to embarrass everyone, to call attention to their role in bank failures," said former bank examiner Richard Newsom, who specialized in insider-abuse cases for the FDIC in the aftermath of the S&L debacle. The goal was simple: "to make other bankers scared."

Newsom said he couldn't understand the shift, unless the agency doesn't "want people to know how little they are settling for."

The FDIC should disclose as much as it can, said Lauren Saunders, managing attorney at the National Consumer Law Center in Washington. "Transparency is always better, and serves as a deterrent to future misconduct."

Yes, let's deter the future conduct of owning, managing, and directing a community bank that concentrates on loan products that the regulators find are being originated and managed within the parameters of safety and soundness guidelines until, within a few months, the world falls apart in the greatest economic collapse since the Great Depression. Thereafter, although we feel compelled to go after many failed bank officials, directors, and third parties because we've got an obligation to recover whatever losses to the fund we are able whenever we can do so without being laughed out of court, we understand, in our heart-of-hearts, notwithstanding the posturing we might do for political or litigation purposes, that these times are different than late 1980s.

This is what neither the Times nor its talking heads understand (or, if they do understand, will admit): the facts are different this time. In the 1980s, there were a number of outright crooks involved in the banking and, especially, the thrift business in certain parts of the country, some wearing stetsons and cowboy boots, others clad in three-piece Armani suits. There were fraudulent appraisals, my-dead-cow-for-your-dead-horse swaps, 100 percent loan-to-value ADC loans on raw dirt, rapid multiple flips that would have taxed Shawn Johnson, and similar shenanigans. The damages were also limited to certain regions of the country where real estate bubbles were exploited (or partially created) by financial institutions who engaged in outright speculation until those bubbles burst. Also, many of the worst players were (relatively) smaller players.

In the latest debacle, the causes of losses are more complicated and the resulting economic consequences much more devastating and widespread. Many of the hundreds of banks that failed collapsed because they were steamrolled by the swiftness of the onset, and the depth, of the economic collapse triggered, in large part, by subprime residential mortgage loans, the complex web of securities they spawned, and the resulting residential real estate inflation. Commercial real estate wasn't the primary cause of the collapse this time, it was a casualty of the collapse. You can argue until you're blue in the face about the nuances of fiduciary duties and CRE concentrations, but in all but the low hanging fruit cases, the FDIC doesn't have smoking guns laying in plain sight to use to extract huge settlements or litigation awards out of either defendants or, more importantly, their insurance companies, who are fighting back.

As to the lack of a "deterrent" to future potential wrongdoers that allegedly results from not making settlements public, I wouldn't be concerned that "silent settlements" are encouraging prospective bank officers and directors to do anything. Those who haven't said "screw it" and opted to sip mai-tais in Cabo until they need their livers "Rolfed," or are seriously considering an alternative exit strategy, aren't chomping at the bit to jump feet-first back into subprime anything or to make CRE or any other product or service their concentration-of-choice, and their primary regulatory supervisors wouldn't let them go there even if they yearned to do so. "Other bankers" are plenty scared Mr. Newsome, without the need to read about FDIC settlements. At least, that's the story with the vast number of smaller banks in this country.

I suppose there might be some deterrent effect if the FDIC announced settlements against the officers and directors of the large Wall Street banks that helped create the mess we're in and which then failed, so that future Wall Street bankers would...oops...none of them failed. That's right: they were bailed out. My bad!

Buried in the story is the rationale for keeping mum (until FOIA forces disclosure) about settlements.

Defendants benefit by settling because they can avoid admitting guilt and limit the damages they might face in court. The FDIC benefits by collecting money without the hassle and expense of litigation. The no-press-release arrangements help close those deals.

Those are valid reasons, and they make sense for both parties.

Let's hope the Times drills a little deeper next time and strikes oil instead of gas.

TARP Paybacks Continue To Roll In

Although I’ve beaten this drum for the last four years, I’m going to continue to rip flamadiddles on the same theme until my hinged wrists get tired. TARP, when it stuck to its intended purpose (before it became a slush fund to bail out the auto unions), not only saved many deserving community banks, it has ended up making a net profit for the US government. One more example is a recent auction of TARP preferred stock of a "saved" Texas community bank.

The U.S. Treasury said Friday it expects to recoup $19.8 million in proceeds from the public auction of FC Holdings Inc.’s Troubled Asset Relief Program debt.

The Treasury priced 21,042 TARP shares of the Sugar Land-based bank holding company’s TARP at $897 per share, which would ring up at $18.8 million. Another 1,052 TARP shares are expected to be sold for $955 per share, totaling $1 million, according to the Treasury.

FC Holdings, the bank holding company for Sugar Land-based First Community Bank, originally received $21 million in TARP in 2009. The Treasury said it has gotten back about $268 billion from its TARP investment in the U.S. banking industry, which was $245 billion.

Unfortunately, the hard-core critics of TARP will never admit that there might have been some good done for some banks, along with all the evil visited upon pure free market principles. The facts keep rolling in like waves onto the shore, and many refuse to acknowledge the error of their ideological ways. It's tough to prove a negative, namely, the proposition that if TARP had not been created, the economy would have tanked a lot worse than it did in 2008-2009.

It's a question of judgment. On this matter, I choose to trust my own. Of course, I'm leaving AIG out of the calculations. That organization wasn't among the "banks" TARP was originally designed to bail out. Nor, for that matter, was Chrysler.

San Bernardino Calls It Quits

San Bernardino County is the birthplace of the first serious consideration by a local government to implement a scheme concocted by former Clinton administration officials and private equity pirates to steal seize underwater mortgages from the lenders in order to write down the principal, refinance them into FHA loans, and sell those loans to new investors (enriching the investment bankers who would fund the scheme). It’s also the place that, when residents publicly objected to the scheme, thumbed its nose at its constituents and forged forward.

Fortunately for all that is right and holy in the land of fruits and nuts, San Bernardino recently came to its senses and abandoned the crackpot plan and opted to submit a request for proposal “seeking plans to address the mortgage crisis.” Given their track record, I suspect they’ll receive and seriously consider plans from the Hells Angels to turn foreclosed homes into profitable meth labs and from Maxine Waters to buy bad loans from whatever financial institution her husband owns these days. I mean, if you’re going to abuse the 14^th Amendment, you might as well throw all caution to the winds and just let fly with whatever comes to mind, whether tethered or untethered to reality.

Although the county’s CEO claimed that the threat of eminent domain was interfering with the ability of the county to work on other “solutions” with lenders and mortgage security investors, and that it was “wrong” to impose “unintended consequences” of the loan seizure scheme on residents who didn’t want it in the first place, anyone with an ounce of grey matter in his or her cranium knew of those negative aspects from the outset. Thus, the local yokels at county hall wasted a lot of time stirring the pot, to no avail. However, they have given the voters the appearance of “doing something” and in politics, appearance always trumps substance.

San Bernardino isn’t the first local governmental entity to attempt to play a fruitless populist (i.e., anti-bank) card to win a PR coup concerning the residential mortgage meltdown. We all recall those geniuses back East who have tried to hold lenders responsible for the condition of abandoned homes they don’t even own and for other consequences of economic and social forces beyond any lender's control. When will voters wise up and kick these time wasters to the curb?

You’re right: when Hell freezes over.

A Deal Is A Deal

AIG's moment of temporary insanity has passed. It's decided not to join a shareholder lawsuit filed by a company controlled by former AIG CEO Hank Greenberg against the US Government for bailing AIG out in 2008. Actually, Hank's company didn't allege that fact of the bailout was itself wrongful, just that the bailout terms set by the government were wrongful. Everyone understands that when you're going down like a torpedoed garbage scow, you always sue the guys who threw you a life preserver because they didn't reel you in quickly enough and you caught a nasty cold.

AIG's board of directors was apparently worried about reputational risk. Given the bad taste left in the collective mouth of the American public by the Wall Street bailouts, that's probably a justified worry. Politicians of all stripes were publicly uttering variations on the theme of "WTF?" on a daily basis. On the other hand, David Boies (yes, THAT David Boies), the attorney for Greenberg's company (which is the plaintiff in the litigation), thinks that the board's decision was not in the best interests of the shareholders. I assume that's a vague threat of a lawsuit against the directors of AIG. It seems to me that if Greenberg goes that route, he'll first have to win the lawsuit against the government in order to prevail against the directors. I'd think he'd have his hands full on with the suit against the government, without taking on the additional defendants. Then again, I don't swim in that specific shark tank, so I assume my rube-like perceptions and opinions are of little interest to the masters of the universe.

There were some other interesting, and even amusing, observations on AIG's board's decision. The Cato Institute's Mark Calabria astutely observed that big financial institutions rarely sue the federal government "because if they did, the government might not bail them out next time." Rim Shot!

On the other hand, AIG's CEO Robert Benmosche told CNCB that AIG believed that "a deal is a deal." Really, Bob? You danced with the bear and you still said that to a reporter without cracking yourself up? "A deal is a deal" as long as you're not the US government, which believes in honoring its deals unless it's politically expedient to renege on them, in which case it just litigates the resulting lawsuits for a decade or more until the public's interest in the outcome has been long since diverted to one or more other shiny baubles.

I understand the public relations downside as a reason to back off suing the US government. However, the "a deal's a deal" rationale simply doesn't hold water, based upon the nature of the devil with whom the deal was made.

The Worst Is Yet To Come

Former banker and bank regulator, and current bank consultant, Mark Olson, had a lot of things to say at a recent ABA Directors Forum. However, perhaps the most disconcerting prediction he made is that when it comes to Dodd-Frank, the pain for financial institutions is only going to get worse.

Dodd-Frank, related crisis-era legislation and regulation, and a gearshift in the regulatory mindset promise a much rougher road ahead, predicted banking expert Mark Olson in a presentation to ABA's Director's Forum, held in early October in conjunction with ABA's Annual Convention.

Due to Dodd-Frank and the other fallout, "banking is going to be more expensive," predicted Olson, but he added, "I can't find that yet in the industry's numbers." He noted that banking's efficiency ratios continue to be favorable, which he believes means that the increased costs of compliance have yet to really bite.

Olson cited recent research by Standard & Poor's that indicates that 25,000 jobs are being created in the course of handling Dodd-Frank, even as many regulations remain unwritten or still in proposed form.

How nice for banks to know that Dodd-Frank compliance will continue to be a growth industry. Of course, that's a growth industry that saps the bottom line rather than enhances it.

Olson was also spot-on, if depressingly so, in his observations about the trends in regulatory supervision.

"The regulators are still very defensive--very, very defensive," said Olson, "and they are very risk averse." They don't wish to be embarrassed again, and as a consequence, bankers will have to make their case to regulators when they want to do anything out of the ordinary.

"If I were in the regulators' position," said Olson, "I would see that there is zero upside for my being flexible."

[...]

"There is a trend toward enforcement over supervision," Olson explained. Where agencies may have nudged, shepherded, and jawboned beforehand, now they are likely to smack.

Activities and policies that banks have engaged in and maintained for many years are now considered suspect, Olson said.

I keep waiting for the pendulum to swing back, because at some point, if it doesn't, the regulators will continue to impede the recovery in the banking business, and perhaps the larger economy served by bank lending, by clamping down too hard on risk taking. "No risk, no reward."

I hope the pendulum swings back while I'm still young enough to enjoy it. The odds are growing slimmer with each passing month.

A Change In The Wind

According to WSJ reporter Jennifer Smith (paid subscription required), financial institutions and other business clients have had it up to their earlobes with being nickled-and-dimed for pass-through "soft costs" by their outside law firms. They're mad as hell, and they're not going to take it anymore.

Invoices for food, photocopies and legal research—items that once were rubber-stamped by companies—are drawing howls. As for charges for first-class flights? Clients are simply saying, "No more."

Some routine costs, such as an attorney's cab fare to the courthouse, are minuscule compared with the huge sums lawyers bill for work on complex mergers or lawsuits. But other items, such photocopying, often pile up and can amount to millions of dollars a year for some big companies.

Clients are making lawyers squirm by making them accountable. How unreasonable!

Often, in-house attorneys are asking law firms to justify the charges. "We're a big corporation, we have pretty deep pockets," says Jordan Kanfer, an in-house lawyer who until Friday was general counsel for the T-Systems North America unit of Deutsche Telekom AG. "You're paying a partner $800 to $1,000 an hour and they're charging you because they ordered sushi."

Mr. Kanfer has signed on for a post at Nippon Telegraph & Telephone Corp. It "drives me insane," he says, to go to a meeting at an outside law firm and get billed for the food.

Personally, someone would have to pay me to eat sushi, but if scarfing raw fish and seaweed floats your boat, and you're paying the Full Monty of my hourly rate, you're welcome to belly-up your gullet to my all-you-can-eat Neptune's buffet 24/7/365 and graze gratis.

As a former in-house counsel, it warms the cockles of my shriveled, black heart to see corporate clients finally clamping down on other tricks of the trade.

Companies that make their own employees fly coach also expect their lawyers to do the same. Business class may be allowed for some long-distance flights. But attorneys who ride at the front of the plane often end up there thanks to their own frequent-flier upgrades.

Also, many clients no longer permit attorneys to charge their full hourly rate for travel time.

"We'll pay half of your time, either coming or going," says Christine Helwick, general counsel for California State University—assuming at least some legal work is performed en route.

I once had a large financial institution client who caught a big law partner billing over 24 hours of travel time to the institution for one calendar day. They asked him if he had crossed the International Date Line going west-to-east. They also fired him and his firm. Sometimes, honesty actually is the best policy, as hard as that might be to realize when your relativistic world is all about "spin."

Clients started clamping down on legal bills more than a decade ago, and the approach gained popularity as the economy tanked. Today, many in-house lawyers view back-office charges with increased skepticism. A poll of 64 law firms this year by Mr. Mattern's firm, Mattern & Associates LLC, found that 80% of respondents had clients who balked at paying for legal research and 69% said they had clients who simply wouldn't pay at all.

"We say, 'Overhead is overhead, and that's part of your cost of doing business,' " says Jeffrey Carr, general counsel at oil-services equipment supplier FMC Technologies Inc., which uses alternative billing to reduce outside legal costs.

"Overhead is overhead." That sounds a mantra to reduce overhead, doesn't it? Welcome to the brave new world your financial institution clients inhabit, counsel!

There's one more trend discussed by Ms. Smith that ought to be of interest to business consumers of law firm services: billing inexperienced attorneys, who sometimes have been known to be...well...inexperienced, at rates that are sometimes as high as those charged by senior attorneys at much smaller, less overhead-burdened firms.

[S]ome companies do object to paying for inexperienced junior lawyers, reasoning that the law firms should bear the cost of training first- and second-year associates.

I wonder if the paradigm shift that has been coming in the way legal services are delivered and compensated will be implemented with relatively minor pain or a whole lotta' hurt? Knowing how receptive to change and how proactive most lawyers are, I expect the latter.

Targeting TAG

ICBA CEO Cam Fine pulled off another Howard Beale impersonation today, this time over a Wall Street Journal editorial that opposed the extension of the TAG program, which is set to expire at year end. Cam's fires have been especially stoked by the fact that the WSJ refuses to publish the position of the ICBA and its allies that the transaction account guaranty program helps community banks at a time when they need all the help they can get, while the Too Big To Fail banks and Wall Street firms that the WSJ (allegedly) speaks for have gotten the lion's share of government bailout largess. Cam rightly points out that TAG is a risk primarily to the FDIC, not to the American taxpayers, since the FDIC is funded by assessments paid by FDIC-insured financial institutions. He ignores the fact that, ultimately, the American taxpayer backs the FDIC insurance of accounts, but his essential point is correct.

Here is the meat of his argument:

And while detractors point out the largest banks hold the bulk of TAG deposits, this should come as no surprise—they hold most of all the nation’s deposits. The four largest banks alone hold 40% of the nation’s deposits, a dangerous concentration that continues to grow. This is all the more reason why extending TAG is so important: if the program is allowed to expire, the largest banks will still hold over $1 trillion in TAG deposits, yet only the first $250,000 of each account will be explicitly insured. The rest will enjoy an implicit guarantee, based on the banks’ too-big-to-fail status. If the author is so concerned with government backstops for the private sector, he should be doubly troubled by the thought of the American taxpayer underwriting all those concentrated deposits in the absence of a bank-funded TAG program.

Although they might hold fewer TAG deposits because of their scale, community banks do more with less. In addition to helping small businesses, farmers and municipalities meet payroll and other recurring expenses, community banks use their limited TAG deposits to support relationship-based lending in local communities. This type of banking is fundamentally different from the transaction-based banking practiced by large banks, which use deposits for all kinds of investments that do nothing for local communities. This further illustrates why any flight of deposits from smaller banks due to a TAG expiration would be so devastating to local communities.

He makes valid points. Anyone who reads this blog knows how concerned I am about the increasing concentration of banking assets and deposits in the largest banks, as well as the continued decline in the number of community banks in this country. I also think too little has been done to save community banks from being steamrolled. Moreover, we're still wallowing in a severe slump, so extending TAG for another few years shouldn't pose a threat to the American taxpayer. If the Fed can continue to punish savers by keeping interest rates on savings deposits at ridiculously low levels through 2015 to help out the big banks, surely there's justification for extending TAG until the economy improves.

On the other hand, at some point, TAG will end. Bankers need to think about life after TAG, and advance planning can never start too soon. Community banks may win this round (although, they need to start pressing their elected officials to move quickly if this is to be accomplished by the end of 2012), but I sincerely doubt that they'll get another extension.

Concentrate On This

Last October, when MetLife left the mortgage origination and servicing business, I pointed out the sad fact that 70% of the home loans originated in 2010 were made by five large financial institutions. Since then, the concentration of power has only accelerated. On top of the dog pile is Wells Fargo, which made one-third of all home loans in the first six months of 2012. Wells, Chase, and U.S. Bancorp combined made half. According to a recent Bloomberg article, this concentration is starting to worry people in high places.

The concentration in the mortgage business has drawn warnings from the inspector general for Fannie Mae and Freddie Mac, the head of Ginnie Mae, Fitch Ratings, and congressmen, including one from Wells Fargo’s home state, about growing risks to borrowers, taxpayers, investors, housing markets and the financial system. Scenarios include a setback or strategy shift at Wells Fargo that could choke off credit for homebuyers and compel the U.S. to again pump in money to keep the housing market from seizing up.

“A concentration of issuers creates an oligopoly,” said Bill Frey, head of Greenwich Financial Services LLC in Greenwich, Connecticut, whose firm invests in, creates and trades mortgage bonds and advises bondholders. The result will be “higher mortgage costs for generations, as well as slower economic growth. Housing is the keystone of our economy.”

While there's the obvious sense of irony when Aunt Fannie and Uncle Freddie bemoan the concentration of power in the residential lending sector resting in hands other than their own, our amusement shouldn't deter us from taking their warnings seriously. Notwithstanding those "experts" who think that the U.S. would be better off if there were just a few big banks left, akin to the situation in "Hoser Land" Canada, many of us in the land of the free prefer a "more's the merrier" approach to banking.

“The nation benefits from a broadly distributed mortgage- finance system,” said Stevens, whose organization represents more than 2,400 firms involved in housing. “If the market is too concentrated on one company, and if they were to change their strategy around mortgage originations or got into financial trouble and had to leave the market altogether you could have market disruptions.”

[...]

Edward J. DeMarco, acting director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has said he’s concerned about concentration and urged officials in a May speech to consider changes. Freddie Mac -- with Fannie Mae, the recipients of nearly $190 billion in government aid --bought 82 percent of the single-family loans it purchased in 2011 from 10 firms, filings show, with 40 percent from Wells Fargo and JPMorgan.

Fannie Mae and Freddie Mac rely on Wells Fargo and other large servicers to collect payments for the loans they guarantee. That makes them vulnerable to the business practices and financial health of a few large banks, said Steve A. Linick, the Federal Housing Finance Agency’s inspector general. The top 10 serviced 75 percent of single-family mortgages guaranteed by Fannie Mae, according to company filings.

“A limited number of servicers poses a safety and soundness risk to the enterprises,” Linick said in a phone interview. This “ultimately could cause losses to taxpayers.”

The effect on servicing has also drawn the attention of Ted Tozer, president of Ginnie Mae, a government-owned corporation that guarantees mortgage bonds holding loans backed by the Federal Housing Administration and other agencies.

“If the quality of servicing deteriorates, you have to deal with it and that puts a lot of oversight responsibility on us, no question about it,” said Tozer, whose Washington-based operation guarantees more than $1 trillion of mortgage-backed securities. “That’s one of the big challenges.”

So, many "experts" agree this concentration is a bad thing. Therefore, what do they propose to do about it? The answer, for the time being, is Nada.

For now, regulators and lawmakers are more focused on keeping money flowing into home loans and are unlikely to force change, according to Bart Naylor, who works on financial policy at Public Citizen, a Washington-based advocacy group.

“To the extent a regulator wants there to be a thriving mortgage market,” they may defer to the largest lenders, Naylor said. “However, they should be cautioned that leading market share has led to oblivion.”

In other words, don't expect anyone to move to oppose this concentration anytime soon. In the interim (if the "interim" ever truly ends), expect the big to get bigger, concentration to continue unabated, and the lovers of the Canadian bacon banking system to have reason to feel warm and fuzzy.

It's not a question of our "fearless leaders" being asleep at the switch. It's that they see the train barreling down the tracks, know that there's a good chance that it may run off the rails, yet, instead of throwing the switch, they avert their eyes and pray for divine intervention.

I don't like the looks of this trend.